Monday, July 11, 2011

Okay, he's 'leading'....

Leaving aside for the moment Obama's policy positions, does anyone still think that he's too passive/failing to lead/afraid to confront Republicans? In a sense, he is out-crazying them: embracing negotiation under the debt ceiling sword of Damocles as a "unique opportunity"; insisting on a $4 trillion grand bargain; promising to veto any short-term debt ceiling fix; and, via Geithner, ruling out a "14th Amendment solution" in which the Treasury simply ignores the debt ceiling. Insisting under all these conditions that he will not agree to any deal that does not raise new revenue is brinkmanship in the extreme. In fact, we seem to be headed straight over the brink.

I do not find it all disturbing that Obama is looking at "trimming" Medicare and social security spending. His own deficit reduction plan proposed new Medicare savings, chiefly by mandating that the Independent Payment Advisory Board hold spending growth to a lower cap.  As for social security, every deficit reduction plan out there draws on a menu of benefit shavings and tax hikes, prominent among them slowing down COLA increases by way of a "chained" CPI.

What does continue to disturb is the low ratio of tax hikes to spending cuts in Obama's proposals. As I noted yesterday, this may be a matter of holding himself to his 2008 campaign promise not to raise taxes on anyone earning under $200k ($250k for a family).  It seems he will not propose to do so under cover of lowering marginal raise while scaling back tax expenditures in such a way as to raise taxes on anyone in a very broadly defined "middle class."


  1. You're normally so good at sussing out what Obama is up to. The high stakes game seems to have driven from your memory that Obama is almost always a counter-puncher. It's a style that matches his temperament. It matches his view of how politics works (leaders let the movement come to them and then make something happen). It matches his view of the Presidency - President not of his party but of all Americans, all of whom are to be treated with respect as legitimate political participants. And it matches the cultural demands that a black man can never look angry - stern, yes; disappointed, yes; even scold. But never full-throated anger.

    Hopefully, he's once again gotten lucky with his opponents.

    I do think he was being candid about removing "deficit" bargaining obsession off the political agenda so he can pivot back to jobs. A big medium-term bargain will give some short-run fiscal and political headroom. Otherwise, he won't be able to get even the slightest stimulus past. And he and the economy are going to die by a thousand titanic battles over little cuts - a new one every week between now and Nov 2012. I doubt he's very optimistic about being able to get much new "investment" done in the next year and a half. But from his standpoint, I expect he thinks it's the best way to play a lousy hand.

  2. I believe there's two scenarios working here:

    1) Obama actually believes the middle class should retain those tax cuts. He may be one of the people that believe a strong and expanding middle class brings stability and benefits society as a whole.

    2) Obama realizes that the Republicans aren't really serious about increasing revenue in addition to budget cuts. Because of this, he feels he can fight them tooth and nail to preserve the middle class cuts, but letting the upper income cuts expire. Knowing that this would lead to a political stalemate with the Republicans, BOTH cuts will expire. This will lead to increased revenue.

  3. The GOP wants a “balanced budget” amendment to the Constitution? The obvious partisan impossibility aside, an annual balanced budget would destroy the ability of government to influence our economy.

    Most people don’t realize that our national “debt” is interest and principal the nation owes on government securities sold. This debt is generally in the form of long term bonds that become due after twenty years. These bonds can be redeemed before twenty years and generally are when interest rates rise higher than what the bond yields. Why hold a five percent bond when you can sell it and buy a five and a half percent bond? Especially if you own billions of them? So as interest rates rise, the money supply dries up because bonds are being bought up by lending institutions.

    A balanced budget amendment would require the annual budget to be “balanced” each year. That means no debt. No debt means that our nation cannot sell bonds for longer than a one year duration. When the government wants to affect the economy, it raises or lowers interest rates on government securities that it sells. This affects the economy, or, business cycle, by reducing or increasing the money supply.

    Financial institutions or governments that provide business loans, buy or sell these bonds predicated on whether or not making business loans to the community, (local, national, or, international), is, or, is not, a more desirable investment than buying government securities.

    Without this important tool, government cannot slow down an economy as markets become saturated. In other words too many businesses and not enough customers. An economic collapse will certainly result as it did in 1929.